Agenda Summary
2006 Federal Housing Policy Committee
National Association of REALTORS®
2006 Midyear Legislative Meetings & Trade Expo
Marriott Wardman Park
Delaware Suite, Lobby Level
Wednesday, May 17, 2006
10:00 AM - 12:00 PM
Chair: JoAnne Poole, Glen Burnie, MD
Vice Chair: Conchita Sulli, Kenner,LA
Committiee Liaison: Nic D'Ambrosia
Committee Executive: Megan Booth/Sean CassidyI. Call To Order
A. NAR Ownership Disclosure & Conflict of Interest Policy
Ownership Disclosure Policy
1. When NAR has an ownership interest in an entity and a member has an ownership interest* in that same entity, such member must disclose the existence of his or her ownership interest prior to speaking to a decision making body on any matter involving that entity.
2. If a member has personal knowledge that NAR is considering doing business with an entity in which a member has any financial interest**, or with an entity in which the member serves in a decision-making capacity*, or wit, then such member must disclose the existence of his or her financial interest or decision making role prior to speaking to a decision making body about the entity.
3. If a member has a financial interest in, or servesin a decision-making capacity for, any entity that the member knows is offering competing products and services as those offered by NAR, then such member must disclose the existence of his or her financial interest or decision-making role prior to speaking to a decision making body about an issue involving those competing products and services.
After making the necessary disclosure, a member may participate in the discussion and vote on the matter unless that member has a conflict of interest as defined below.
Conflict of Interest Policy
A member of any of NAR’s decision making bodies will be considered to have a conflict of interest whenever that member:
1. Is a principal, partner or corporate officer ofa business providing products or services to NAR or in a business being considered as a provider of products or services (“Business:); or
2. Holds a seat on the board of directors of the Business unless the person’s only relationship to the Business is service on such board of directors as NAR’s representative; or
3. Holds an ownership interest of more than 1 percent of the Business.
Members with a conflict of interest must immediately disclose their interest at the outset of any discussions by a decision making body pertaining to the Business or any of its products or services. Such members may not participate in the discussion relating to that Business other than to respond to questions asked of them byother members of the body. Furthermore, no member with a conflict of interest may vote on any matter in which the member has a conflict of interest, including votes to block or alter the actions of the body in order to benefit the Business in which theyhave an interest.
________________________________________
*Ownership interest is defined as the cumulative holdings of the member, the member’s spouse, children, siblings and to any trust, corporation or partnership in which any ofthe foregoing individuals is an officer or director, or owns, in the aggregate, at least 50% of the (a) beneficial interest (if a trust), (b) stock (if a corporation) or (c) partnership interests (if a partnership).
**Financial interest means any interest involving money, investments, credit or contractual rights.
II. Approval of 2005 Annual Meeting Minutes
III. Guest Speakers – FHA Reform
A. Peter Bell, President, National Reverse Mortgage Lenders Association
B. Tallman Johnson, Professional Staff,, House Financial Services Committee
C. FHA Commissioner Brian Montgomery
IV. Policy Issues and Discussion
A.FHA Risk-based pricing (You may also review the C.A.R. IBP)ISSUE: The Administration has brought forth a proposal (now included in H.R. 5121) that would createa risk-based pricing model for FHA.
BACKGROUND: Currently FHA prices all mortgages the same regardless of the income, cash, and financial profile of the borrower. FHA would now like the flexibility to set premiums (both upfront and monthly) based on risk. They believe this will allow them to reach lower income borrowers who are now being ill-served by higher priced loans in the sub-prime or conventional markets. Current statutory maximum premiums for FHA are 2.25 upfront and .5 monthly. FHA currently charges a 1.5% upfront premium and .5% monthly premium.
FHA has acknowledged that riskier borrowers may be charged more in premiums then they currently are, but also points out that less riskier borrowers will see reductions in the premium payments. HUD reports that risk-based pricing will allow FHA to expand their pool of borrowers while remaining fiscally sound.
HUD and NAR have provided charts displaying the expected costs of different loans:
HUD chart:
MORTGAGE
COMPARISON | Prime
Conventional
Standard MI
(660 FICO) | FHA Risk
Based
Premium
(-575 FICO) | Sub prime
High Cost
(-575 FICO)
|
Purchase Price | $225,000 | $225,000 | $225,000 |
| Mortgage Amount | $200,000 | $206,000 | $200,000 |
| Mortgage Interest Rate (Fixed) | 6.500% | 6.500% | 9.500% |
Upfront Mortgage Insurance
Premium (MIP) | NA | 3.000% | NA |
| Annual MIP | 0.520% | 0.750% | NA |
Monthly Principal, Interest, and
MIP Payment | $1,351 | $1,427 | $1,682 |
Sample prices based on NAR research:
Home
Price |
FHA loan
|
Down
Paymt
|
FHA
fee
| Other
closing fee | Cash
at
closing |
Loan
amount
|
Mrtg
rate
|
Monthly Mrtg
|
Lifetime
Interest | Lifetime
total
payment |
$200k | old | 6,000 | $3,000 | $3,000 | $12,000 | $194,000 | 6.50% | $1,226 | $241,436 | $441,436 |
$200k | high risk 30-year | $0 | $4,500 | $3,000 | $0 | $207,500 | 7.00% | $1,381 | $296,981 | $496,981 |
$200k | high risk 40-year | $0 | $4,500 | $3,000 | $0 | $207,500 | 7.00% | $1,289 | $418,946 | $618,946 |
$200k | med risk 30-year | $0 | $3,000 | $3,000 | $0 | $206,000 | 6.75% | $1,336 | $281,000 | $481,000 |
$200k | med risk 40-year | $0 | $3,000 | $3,000 | $0 | $206,000 | 6.75% | $1,243 | $396,599 | $596,599 |
$200k | low risk 30-year | $0 | $1,500 | $3,000 | $0 | $204,500 | 6.50% | $1,293 | $265,328 | $465,328 |
| $200k | low risk 40-year | $0 | $1,500 | $3,000 | $0 | $195,00 | 6.50% | $1,197 | $374,684 | $574,684 |
$200k | subprime 5% down | $5,000 | $0 | $3,000 | $8,000 | $195,000 | 9.50% | $1,640 | $587,040 | $787,040 |
$200k | Subprime no down | $0 | $0 | $3,000 | $0 | $203,000 | 9.50% | $1,707 | $619,328 | $819,328 |
THE PROS OF RISK-BASED
PREMIUMS: | THE CONS OF RISK-BASED
PREMIUMS: |
| 1. HUD has indicated it would lower premiums through risk based pricing for FHA borrowers who are better qualified. One HUD example anticipates lowering the upfront premium from 1.5% to .5 percent for such borrowers. | 1. There are some who are concerned that risk-based pricing will promote the cherry-picking of more qualified borrowers and abandon FHA's traditional market.
| 2. Risk-based pricing will allow borrowers who nowmay be drawn to more risky and expensive mortgage products in the conventional market to utilize the benefits of an FHA-insured mortgage. | 2. Although it can be assumed that FHA risk-based pricing will result in lower costs relative to subprime and exotic mortgage products in the conventional market today, FHA costs for less qualified borrowers will likely increase from current FHA levels. |
| 3. Risk-based pricing will realign FHA's ability to compete and percentage of market share to traditional levels, ensuring the continued viability and relevance of FHA. | 3. Without any statutory maximum for the upfront or annual mortgage insurance premium, in theory HUD would have the authority to raise premiums to predatory levels. |
STATUS/OUTLOOK: This proposal is included in both HUD’s budget request for FY07, and in H.R. 5121, the “Expanding American Homeownership Actof 2006.” A hearing was held on this proposal in the House Financial Services Housing Subcommittee in April. Risk-based pricing is a priority for HUD.
B. FHA HECM for purchaseISSUES: Reverse mortgages allow older homeowners (age 62+) to convert part of the equity in their home into income without having to sell their home or take on new monthly mortgage payments. FHA has now proposed a HECM (home equity conversion mortgage) for purchase.
BACKGROUND: Currently seniors who want to move, but need additional cash flow to pay their living expenses, must purchase a new home and take out a HECM in two distinct transactions, resulting in two sets of loan fees and charges. With a HECM for purchase, individuals can purchase a new home without exhausting cash reserves or taking on new monthly payments. They can complete the sale of their former home and purchase of their new home in one transaction, while continuing to receive tax-free income on their equity.
STATUS: This proposal is included in H.R. 5121, as introduced by Rep. Ney, Waters, Miller and Tiberi.
V. Legislative/Regulatory Updates
A. FHA Reform ProposalDespite the successes of the FHA program, too many potential homeowners in underserved populations continue to be left out from the American dream of owning a home. In high-cost areas of the country, FHA is not a useful homeownership tool because its maximum high-cost mortgage limits lag far behind the median price of housing. As a result, teachers, police officers, municipal workers and other middle class working people are excluded from the benefits of homeownership in communities where they work.
NARmembers are active participants in, and supporters of, the FHA single-family mortgage insurance program and are committed to preserving its market viability and financial solvency.
The FHA single-family mortgage program has played an importantand vital role in the mortgage marketplace. The FHA program has a public purpose obligation to provide mortgage insurance to American families who choose FHA to meet their homeownership needs.
Reps. Ney (R-OH), Waters (D-CA), Miller (R-CA) andTiberi (R-OH) have introduced H.R. 5121, the "Expanding American Homeownership Act of 2006". This bill would make four major changes to FHA:- It would eliminate the 3% downpayment requirement, thus allowing FHA to offer flexible downpayment terms.
- The bill raises the cap on loan terms from 30-40 years.
- The FHA loan limits would be increased to 65% of the conforming loan limit (from 48%), bringing the current limit to $271,050. The bill would also increase the loan limits in high costs areas to 100% of the conforming limit, which currently is $417,000
- H.R. 5121 would allow FHA to use risk-based pricing for their premiums. This would allow FHA to offer differing upfront and monthly premiums to borrowers based on risk.
The House Financial Services Housing Subcommittee had a hearing on the bill April 6th. NAR submitted testimony supporting reform of the FHA mortgage insurance program. The Federal Housing Policy Committee is expected to consider policy on FHA risk-based pricing in May. The Committee will debate the benefits of providing flexible financing vs. the increased costs for some borrowers.
B. HUD REOs - Broad Listing Brokers
C. RHS Homeowner Education Proposed RuleRecently the Rural Housing Service (RHS) of the Department of Agriculture (USDA) conducted a comprehensive property assessment of its existing multifamily housing portfolio. The survey showed that dramatic steps must be taken to address financial and physical needs of this aging housing stock. With funding shortages, many of these propertieshave deferred maintenance and lack adequate reserves.
In addition, the RHS is completing a study on its 502 single family loan guarantee program.
NAR recognizes the need to maintain the viability of federal multifamily housing programs and to increase the availability and affordability of rental housing. NAR encourages the removal of policy and program disincentives that inhibit owner participation in the development of new rental housing or the preservation of existing safe and affordable rental housing.
Members of NAR and its affiliate, the Institute of Real Estate Management (IREM), are involved in the ownership and management of RHS multifamily properties. They would welcome improvements to this program.
Legislation is being developed to provide a means of restructuring and revitalizing the RHS multifamily portfolio. Similar to the HUD Mark-to-Market program, these proposals would restructure Section 515 loans to provide for the economic viability of these properties. The proposals strive to preserve the availability of this housing, and to protect tenants residing in those properties that leave the Section 515 program. Loan restructuring will allow owners to obtain new financing to rehabilitate and increase reserve funding to facilitate on-going maintenance. The proposals also extend homeownership options for tenants with vouchers.
In addition, NAR participated in a study that RHS conducted to review its 502 single-family loan guarantee program. This studywas intended to make recommendtaions that would make the program more useful in rural communities. The study is expected to be published in early 2006.
D. FHA Manufactured Housing
E. FY 07 Housing Budget
Last week the Senate Appropriations Subcommittee on HUD heard from Secretary Alphonso Jackson about the FY07 budget request. Senators expressed concern about cuts in CDBG, HOPE VI, and housing for the disabled and seniors. Chairman Shelby (R-AL) expressed concerns about the FHA single-family loan program and questioned its importance. Secretary Jackson countered that FHA needs to be made more flexible to save those borrowers who are now being pushed into sub-prime loans and inappropriate products. Subcommittee Member Kit Bond (R-MO) and Jackson both expressed concern about seller-financed down payment gifts and Jackson said HUD was waiting for an opinion from IRS before determining what FHA's position on these down payments would be. The House will begin similar hearings next week.
VI. General Information
A. NAR/HUD partnership on FHA mortgage insurance
VII. Other Business
VIII. Adjournment
